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Smart Strategies for Purchasing a Business for Sale

It is easy to talk about “due diligence” in the abstract when considering a business for sale, but what does it actually mean?

Taking on an existing entity is a challenge. Even if fresh ownership has a commercial plan and vision for the brand, they need to know that they are buying something that has great prospects.

We will examine the smart strategies that operators use as they survey a business for sale.

Understand The Business Niche Position

Market buyers who are taking a close interest in a business for sale could be drawn in by a number of factors. From the brand recognition to the level of assets, the location or the customer base and annual turnover, these are components that influence an investment. The fact remains that individuals and groups need to do their due diligence on the industry position – what is the competition like? What point of value do they offer their customers? Where do they fit in the landscape and will it require a lot of work to make the entity a viable prospect?

Future Valuations & Rigorous Financial Examination

It is always fascinating for prospective buyers who are taking a glance at a business for sale to see what kind of valuations are in place for 12 months, 3 years, 5 years and 10 years from now. How are they positioned to make gains, to drive a more efficient revenue stream and to add more value to the brand moving forward? Thankfully there can be a rational approach in this regard when clients take note of balance sheets, profit and loss statements, credit reports and more to see where the organisation is tracking and if they are saddled with debt or free to make aggressive market manoeuvres.

Recognising Spending/Borrowing Power

Constituents who are looking to make serious gains with purchasing a listed business entity need to know how far they can extend themselves financially. What do lenders and banking institutions say on the subject? Have the right applications been put forward and are the borrowing terms favourable if that is the necessary course of action? This will give interested parties greater assurances when they are at the negotiating table.

Independent Valuation From Multiple Sources

Those people who place a value on a business for sale should not be in a position to have a vested interest. If they are linked in any way to the buyer or the seller, then there will always be accusations of bias and agendas. By connecting with brokers, agents and legal representatives, it is possible to review all of the tangible assets, the goodwill and other components that underline how much a company is worth on the market. Work through this process a couple of times for clarity.

Legal Intervention

Unfortunately it is no longer considered best practice to engage a business for sale with a simple handshake agreement. In the current climate, it is paramount to review all necessary details of a deal to ensure that there are no red flags or terms that could be detrimental in the short and long-term of the new ownership. Have them read over the listed documents and see if there are any provisions that need revisiting or renegotiating.

Reviewing Motivations to Buy & Motivations to Sell

 

It is very helpful for prospective buyers who are looking at a business for sale to take a step back and a deep breath. Ask the questions: why are we proceeding to make the purchase and why are they willing to sell? If there is understanding and clarity on this front, then progress can be made. However, if there are doubts or questions about this topic, it is important to seek answers or to move on.

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